CAPEX Q3 2015

Despite skepticism and uncertainty about the energy market in the region, this year has so far seen project spends worth c.USD 57.9bn, which has been in line with those seen in 2014. While the first quarter of the year saw more than USD 20bn worth of project spends due to several mega projects in Qatar, Kuwait and U.A.E., the second quarter saw less than USD 10bn worth of project spends as project owners in the region decided to postpone their mega projects due to financial and feasibility concerns. Although this led to several apprehensions regarding the progression of projects and the outlook for the remainder of the year, 2015 has seen similar levels of project awards as was seen in 2014 – when oil prices were twice the 2015 average.

"Q3 2015 has witnessed c.USD 26bn worth of project awards"

In contrast to a slow previous quarter, Q3 2015 has witnessed c.USD 26bn worth of project awards. A majority of these projects, c.50%, are from the refining sector owing to the award of KNPC’s Al Zour Refinery Project (c.USD 13bn). This is followed by c.21% of project awards in the gas processing sector due to the award of Saudi Aramco’s Fadhili Gas Plant (c.USD 5bn). In addition to these, this quarter also saw the award of KOC’s Main Pipelines Manifold Gathering System worth c.USD 775mn and PDO’s Miraah 1021MW Solar Power Plant worth c.USD 600mn.

Although this quarter saw a higher than average amount of project spends, this large number mostly stems from two mega projects, leaving a majority of the planned mega projects still due for award. Historically, during times of low market spends and challenging market conditions, we have seen some of the larger cash rich project owners and countries go ahead with some of their critical mega projects while other smaller owners and operators have had to delay project awards and have had to struggle with project funding due to adverse market conditions. This trend was also seen this year where large project owners like KNPC have awarded mega projects whereas smaller project owners have continued to face challenges and postpone their projects.

As project owners have realized the likelihood of oil prices remaining in the $45-$55 per barrel price range in the short to medium term and have predicted the associated challenges that they will have to face due to a slow energy market, project owners are now revisiting the feasibility of various mega projects that were previously seen as Tier 1 projects. Long delays seen for mega projects such as IPIC’s Fujairah Refinery worth c.USD 3.5bn, Emirates LNG’s LNG Regasification facility worth c.USD 1.7bn, DEWA’s Hassyan Coal Fired Power Plant worth c.USD 3.5bn and KNPC’s LNG Regasification and Import Terminal worth c.USD 3bn depict the growing concerns faced by project owners in this region. Going forward, we will likely see that even large project owners will face difficulties with project awards given the lower expected revenues. With the energy market posing several concerns at these sustained price levels, countries might place priority on other infrastructure projects over energy projects.

The power sector, however, has remained a resilient destination for investment. This sector has historically accounted for one of the largest share of project spends in the region regardless of market conditions and this trend continues to be seen. Contax Partners’ data reveals that while there has been a constant increase in project announcements in the power sector over the past few years, this trend will continue to grow (as shown in Figure 1) due to favorable macro-economic and demographic factors.

This year has already seen c.USD 10.7bn (c.61% of 2014 power project awards) and still has c.USD 13.6bn worth of power projects scheduled for the year. Several mega projects in the power sector that are currently in the pipeline for the remainder of 2015 and for 2016 are displayed in Table 1.

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While the power sector will be the focus for the remainder of 2015 and for the following year, other sectors have multiple mega-projects due for award – most of which are expected from countries such as Oman and U.A.E. Oman has a majority of its project spends planned for award in the oil & gas production and petrochemical sector until the end of 2016 with one of its most awaited projects, ORPIC SAOC - Liwa Plastics Industrial Complex (c.USD 3.6bn) expected to be awarded in Q4 2015. On the other hand, U.A.E. has a majority of its spends planned for award in the oil & gas production and refining sector until the end of 2016. With several large projects scheduled for award in Q4 2015, Contax Partners predicts 2015 could potentially end with total project spends between the range of USD 65bn to USD 70bn.

As the GCC energy market continues to face challenges, Contax Partners can support project owners, contractors and suppliers understand market conditions, maximize the opportunities that are present in the region and guide them on the underlying risks related to execution. Through its dedicated research team and detailed Tiering methodologies, Contax Partners can help companies evaluate which projects are likely to go ahead.

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Contax Partners assists project owners, contractors and suppliers to maximize opportunities associated with these projects, guide them on the underlying risks related to execution and the effects of increasing project workload.

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Since our establishment in 1985, Contax Partners has been the advisor of choice for companies operating within the constantly evolving Middle East, Russia and Africa energy sector. Having operated in the energy market for over 30 years, we have a track record of empowering our clients to win business. Contax Partners is well placed to understand the challenges, and what impact these can have on your growth plans for the Middle East, Russia and Africa.